Quocirca's Straight Talking: Convergence here at last?

The melding of voice and data networks has been talked about for some time - but the effects of this phenomenon are finally being felt in the UK telecoms industry. Quocirca's Rob Bamforth tells you what to expect.

Convergence is an overused and loaded term in the telecoms industry. However, the growth of the internet and growing acceptance of IP at the core of telecommunications networks has led to real potential for the melding of voice and data services.

In a recent survey of 150 senior IT and communications decision makers, Quocirca found that only around seven per cent had organisation-wide converged voice and data networks onto a single IP foundation, with cost, security and quality of service standing out as perceived obstacles. Just over a third had some adoption and a further 13 per cent were planning to converge in the next 12 months.

It was apparent from the research that smaller companies, or subsidiaries of larger enterprises, were the ones where most progress had been made.

Convergence in itself does not guarantee success. Cable & Wireless, for instance, has had a strong converged services offering for a number of years which has helped it grow significant presence in larger enterprises, both in the UK and with its carrier network internationally. However, it has struggled of late and is now undergoing a significant realignment of its priorities, including a retreat from expanding its networks internationally and a refocus on the smaller and medium businesses it has neglected in the UK. Based on our research, this is an area C&W should be in a position to capitalise on.

At the same time, the competitive landscape is strengthening. In contrast with the contraction and restructuring elsewhere, UK telecoms operator Kingston Communications completed its acquisition of data networking specialist Omnetica on the last day of 2004. With a combined revenue of just over half a billion pounds and almost 3,000 employees in the UK, France, Italy and the US, it now noses ahead of Thus Group, creating additional interest in the middle of the business telecoms supplier sector.

Kingston Communications possesses expertise in carrier services, enterprise voice and contact centres, having long since extended beyond its humbler formation in 1904 as the local telephony provider in Hull. Its business services have grown across the UK, generally supplying to businesses slightly smaller than the larger enterprises. Omnetica was formed 98 years later in 2002, by combining the skills base of Siemens Network Systems in the UK, Arche Communications in France and PRES in Italy and has accumulated significant expertise in IP networking, security and storage.

While other telecommunications providers are trimming, shaving and axing their businesses, Kingston has decided to enhance and expand. Some acquisitions appear to deliver only economies of scale or market share growth but this one sees the combination of two complementary skill sets. Of course there are always challenges to overcome in the process of merging but the raw experience from both sides looks well-matched.

This acquisition provides further capability to serve companies' voice and data needs, extends a European dimension to the company and grows the ability to address the needs of larger enterprise customers. It also moves Kingston directly into the territory of C&W. Still, if C&W can successfully complete its re-alignment and use its considerable network assets to extend its customer reach to the small and medium-sized enterprises, it will be a formidable player able to build on its number two position to BT in the market.

BT is unlikely to submit easily to these competitive pressures. The spotlight of network change has been on mobile operators for some time but fixed line in the UK is undergoing changes with BT as a leading light. The prolific growth of broadband, the unbundling of the local loop and perhaps even the unwiring of the local loop through fixed and mobile convergence all form part of a rethink.

BT calls its response to these changes the 21st Century Network, or 21CN. The approach it is taking to deliver on the 21CN promise combines BT's traditional focus on fundamental network values, such as quality of service, with a progressive delve into IT and mobility, using broadband as the key connector.

It's a grand and radical plan which will offer new services, multimedia content and traditional telecoms service quality at a reduced cost and with greater flexibility. But it will take until 2009 to deliver to most customers. In the meantime BT can only point to a range of trials, its in-progress acquisition of managed communications services firm Infonet and a vision of a super-converged future, while its competitors offer less ambitious converged network services.

The good news for enterprise customers large and small? The improving capabilities of operators chasing BT's market-leading position will increase the competitive pressures, enhancing services through differentiation and driving down costs.

Whilst there is scope for more consolidation, this should also lead to a stronger set of operators able to compete for the mid-sized business market - and not a reduction in the competitive pressures for the market leader. Convergence, it seems, can deliver benefits indirectly to the market as well as directly to the network.